April 19 (Bloomberg) -- National City Corp., Ohio's largest lender, may seek capital from private investors or a non-U.S. bank to avoid a takeover by in-state competitors KeyCorp and Fifth Third Bancorp.

The bank may seek a transaction that will ``enable senior management to keep their jobs and allow thousands of employees at NCC to keep working,'' Oppenheimer & Co. analyst Terry McEvoy said in an interview and an e-mail, referring to National City by its stock ticker.

National City, once one of the nation's biggest subprime lenders, needs to raise capital after reporting $333 million in losses on bad loans in the fourth quarter. The Cleveland-based company is scheduled to report earnings on April 22. The lender hired Goldman Sachs Group Inc. to study alternatives, which may include bids from Ohio's KeyCorp and Fifth Third, analysts said.

``National City would prefer not to sell to Key,'' said Fred Cummings, president of Elizabeth Park Capital Management in Beachwood, Ohio and a former KeyBanc Capital Markets analyst. ``They would much prefer a capital infusion that would buy them some time so they could either turn things around or sell from a position of more strength.''

The company may need as much as $4 billion, analyst Ian de Verteuil of BMO Capital Markets said in a research note. RBC Capital Markets analyst Gerard Cassidy said the bank, ninth- largest in the country by assets, would ``surely'' need several billion dollars.

`It's Going to Be Big'

``If they go to the well, it's going to be big,'' Cassidy said in an interview. ``The question is just how big.''

National City may raise money by offering shares and selling off assets, including a stake in Visa Inc. that Cassidy said could fetch more than $1 billion.

The bank is the worst performer so far this year among the 24 companies in the KBW Bank Index with a 49 percent drop. It is down 78 percent from a high of $38.49 set in February 2007, for a market value of about $5.28 billion.

The ``right price'' for the company to attract buyers might be as low as $3 to $4 a share, Cassidy said, compared with the April 18 close of $8.33 on the New York Stock Exchange. National City is likely to resist ``draconian scenarios,'' he said. ``I would be surprised if they sold.''

Henry Meyer, KeyCorp's chief executive officer, ``knows that this could be the deal of his lifetime,'' Cummings said. He called Meyer ``very conservative'' and unlikely to make a high bid.

National City spokeswoman Kristen Baird Adams and KeyCorp's Bill Murschel declined to comment. Fifth Third's Debra DeCourcy didn't return a call.

Market Turmoil

The world's biggest banks and brokerages have posted more than $260 billion in writedowns and credit losses tied to the collapse of mortgage markets since the beginning of last year. They've raised more than $160 billion from public and private sources to replenish capital, with National City tapping public investors for at least $1.9 billion, according to data compiled by Bloomberg.

A merger with another Ohio lender may be unpalatable to National City's management because of rivalries, McEvoy said. KeyCorp is based in Cleveland, and Fifth Third has headquarters in Cincinnati.

``KeyCorp and National City have been fighting for the same customers for years and years and that has created, to some degree, ill will between the two companies,'' McEvoy said.

While a combination with KeyCorp may be cheaper to run, ``cost savings mean layoffs'' that National City Chief Executive Officer Peter Raskind would resist, McEvoy said. ``There is a social factor, definitely.''

Possible Buyers

Bank of Nova Scotia may buy ``at least a stake'' in National City and Corsair Capital LLC in New York is considering a bid, the Wall Street Journal reported earlier this month. Fifth Third and KeyCorp have submitted offers, the Journal said.

A buyer for the bank could get as much as $150 billion in assets and 1,400 branches. The new owner would also be buying into Ohio and Florida, two of the country's weakest housing markets. Those states ranked among the 10 with the most foreclosures in March, according to RealtyTrac Inc., an Irvine, California-based seller of default data.

National City in 2006 was among the 10 biggest originators of subprime mortgages, which are made to people with the weakest credit. The bank sold its subprime-loan unit, First Franklin Financial, at the end of 2006 to Merrill Lynch & Co. Some First Franklin loans -- and their ongoing losses -- were retained by National City.

To contact the reporters on this story: Linda Shen in New York at lshen21@bloomberg.net; David Mildenberg in Charlotte at dmildenberg@bloomberg.net.

Last Updated: April 19, 2008 00:02 EDT